Last problem was 0480 (HELP)

Q463. (1) Write the equation for value, FV, of principal, PV, saved at interest rate R for N years (compounded annually).

(2) Suppose you know the future value in problem one and want to determine the present value. Solve the equation you wrote above for PV.

(3) Suppose I have a project that will deliver A dollars in one year, B dollars the second year and C dollars in the third year under a prevailing interest/discount rate of R. Write the equation for the present value of this project.

Q464. (a) Suppose a friend makes the following offer: "I am willing to give you \$10 right now, 25\$ in 3 years or \$200 in ten years." Describe the logic you might use to see which of these is the best deal. Calculate the present value of each opportunity and use the results to sketch a simple decision tree. Assume a discount rate of 5%

(b)If you have the choice between paying a cash price right now or spreading the payments out over 12 months with no interest, which would you choose and why?

Q465. A used car costs 10,000. A comparable new car costs 20,000. Owners of new cars can expect to pay nothing per year in maintenance for ten years. Owners of used cars pay \$1000 per year in maintenance. How do the costs compare over ten years? Assume a 7% discount rate.

Q466. A state agency is considering a childcare subsidy that would facilitate single parents attainment of college degrees. The benefit would cost \$10k per recipient per year for four years. The expectation is that individuals with a college degree will earn more than individuals without a college degree. This means that they generate more revenue in the form of income tax. They are also less likely to require government assistance of various kinds — call this amount A. Assume current rules limit us to a ten year time horizon. Assume the average salary difference between non-college grads and college grads is D (but get the real info here) and that the marginal tax rate can be found here. Assume a 5% discount rate. For the purposes of this problem, we will ignore inflation.

Q467. (a) Provide an example that illustrates how the IRR criteria can give wrong answer. (b) Provide an example that illustrates how payback period criterion can give the wrong answer. (c) Describe how risk, safety and hedonism might enter into the calculations in discounting problems.

Q468. Describe how to set up the following problem. There are many inefficient and dirty older cars still in use. Future generations are harmed by the wasted fuel and added pollution these cars represent. A proposal is in the works to pay people a bonus to trade them in. How should we think about this? In your preliminary thinking, ignore any economic stimulus effects. You can bring that in later if you wish.

Q479. Some old cars are being driven by people who take the attitude "if it ain't broke, don't fix it" and "sure, it might not be efficient or clean, but I can't afford to buy a new car." These cars use too much fuel and they pollute the air causing health problems in the population. Assume new cars are zero emission and so create zero health care costs. Each old car, on average, contributes to pollution and health care costs to the tune of \$300 per year. We want to run a program to get 100 "junkers" off the road each year for the next three years by offering a \$2000 rebate to people who swap a junker for a brand new zero emission vehicle. Working with a ten year time horizon and an initial discount rate of 3.5%, compute the NPV of the project. Then adjust the the subsidy to determine how large a subsidy we can give and still have the project worth doing. Then compute the IRR of the project at both the original amount and this new amount.